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Rural Hipotecario XIX, Fondo de Titulizacion Spanish RMBS Notes Assigned Ratings

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Rural Hipotecario XIX, Fondo de Titulizacion Spanish RMBS Notes Assigned Ratings

Ratings List
Class Rating Amount (mil. €)
A AA (sf) 361.50
B NR 42.50
NR--Not rated.

Overview

  • We have assigned our credit rating to Rural Hipotecario XIX, Fondo De Titulizacion's class A notes.
  • Rural Hipotecario XIX will securitize a portfolio of Spanish first-ranking residential mortgage loans that four saving banks originated.

MADRID (S&P Global Ratings) June 23, 2020--S&P Global Ratings today assigned its credit rating to Rural Hipotecario XIX, Fondo de Titulizacion's (Rural Hipotecario XIX) class A notes. At closing, Rural Hipotecario XIX also issued unrated class B notes (see list above).

The transaction securitizes a portfolio of Spanish first-ranking residential mortgage loans that Cajasiete, Caja Rural, S.C.C., Caja Rural de Zamora, C.C., Caja Rural de Aragón, S.C.C., and Caja Rural Central, S.C.C. originated. The four originators are Spanish saving banks with a strong regional and rural presence in their home markets. This is the first transaction in the Rural Hipotecario shelf that we rate. The originators, which are not rated by S&P Global Ratings, remain the servicers of the loans. They are experienced servicers in previous multi-originator securitizations. Payment collections on the collateral are swept the next business day to the treasury account in the name of the fund. To address the risk related to loss of collections due to insolvency of the servicer, we have stressed commingling as a loss in our analysis.

Loans included in the pool are highly concentrated in the Canary Islands (34.82%), Castilla-Leon (26.74%), and Aragon (20.67%) regions. As per our asset specific criteria we have adjusted our weighted-average foreclosure frequency (WAFF) to account for geographic concentration. More than half of the loans in the pool were originated in 2017 or after. We have considered this in our seasoning adjustment to the WAFF. Of the pool, only 2.11% of the loans were granted to non-Spanish residents and 22.86% to self-employed borrowers. We have applied adjustments as per our asset-specific criteria for these characteristics. There are no broker-originated loans in the pool or commercial or mixed-use properties.

Of the pool, 98% are monthly amortizing floating-loans referenced to 12-month Euro Interbank Offered Rate (EURIBOR), paying on a monthly basis. The remaining 2% are fixed-to-floating loans, which will switch to 12-month EURIBOR by December 2021. The notes pay three-month EURIBOR plus a margin. The transaction is unhedged. We considered basis risk and margin compression under our cash flow analysis. Margin compression considers that around 60% of the pool can benefit from margin reductions if several financial products are contracted with the originators. Loans included in the pool are current or up to 30 days in arrears, with the latest ones representing only 1.5% of the pool. We have adjusted our WAFF accordingly in our analysis.

The issuer used the class A and B notes' issuance proceeds to purchase the "participaciones hipotecarias" (PHs) and "certificados de participacion hipotecaria" (CPHs). At closing, credit enhancement to the class A notes is provided by subordination, a reserve fund, and excess spread.

The reserve fund, representing 4.5% of the notes, was fully funded at inception by a subordinated loan. The amortization of the notes is fully sequential. As in other Spanish securitizations, there is a combined interest and principal priority of payments, with no interest deferral triggers because class B interest is always paid after class A amortization.

In view of the current macroeconomic environment, eligible borrowers benefit from COVID-19 related moratoria (either introduced by Royal Decree Law or as a part of the banking sector initiative or the servicers' own initiative).

The eligibility criteria do not exclude loans that benefit from any COVID-19 related moratoria. The loans in moratorium as part of the sector initiative will be limited to 10% of the initial notes' balance. These loans can take principal payment holiday for up to 12 months. We have considered this risk as part of our cash flow analysis. Consequently, we have assumed that 10% of the borrowers in the portfolio will request and be granted a moratorium or payment holiday during the first 12 months. As such, we have decreased scheduled collections of 10% of the collateral for the first 12 months and assumed that the maturity of these loans is extended by 12 months. Of the pool, 3.56% of the loans are in moratorium, with 3.27% and 0.29% in legal and sector moratorium, respectively.

Banco Santander S.A. is the treasury account provider and the paying agent.

We consider that the transaction's documented replacement mechanisms adequately mitigate its counterparty risk exposure to Banco Santander up to a 'AA' rating level under our current counterparty criteria (see "Counterparty Risk Framework: Methodology And Assumptions," published on March 8, 2019).

We believe the final documentation and legal opinions adequately mitigate counterparty and legal risk, in line with our criteria. We consider the issuer to be bankruptcy remote.

Our operational risk and structured finance sovereign risk criteria do not constrain our rating on the class A notes (see "Global Framework For Assessing Operational Risk In Structured Finance Transactions" published on Oct. 9, 2014, and "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions," published on Jan. 30, 2019).

Our rating addresses timely payment of interest and ultimate payment of principal on the class A notes. Our analysis indicates that the available credit enhancement for the class A notes is sufficient to withstand the credit and cash flow analysis stresses that we apply at the assigned rating.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions, but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Related Criteria

Related Research

Primary Credit Analyst:Rocio Romero, Madrid (34) 91-389-6968;
rocio.romero@spglobal.com

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